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May 1, 1972

Joseph J. ASHTON, Plaintiff,
THORNLEY REALTY CO., a co-partnership, et al., Defendants

Lasker, District Judge.

The opinion of the court was delivered by: LASKER

LASKER, District Judge.

Joseph Ashton sues for damages and injunctive relief against various alleged fraudulent activities in connection with the offering of shares in a cooperative apartment. Jurisdiction is predicated on various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. Since any recovery by plaintiff rests upon the validity of his claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5, *fn1" we limit our analysis to the application of that section and rule. Defendant Petcavage moves, pursuant to Rule 12(b), F.R. Civ. P., to dismiss the complaint on the ground that the court lacks jurisdiction of the subject matter or for summary judgment pursuant to Rule 56. Some of plaintiff's claims are dismissed for lack of jurisdiction, and summary judgment for the defendants is granted as to the remainder.

 Ashton was a tenant in occupancy at the time the contested shares in the apartment corporation were offered for sale. Defendant Petcavage is presently in possession of the apartment by virtue of his purchase of 550 shares from the Thornley Realty Co. ("Thornley"), the owner of the premises at the time a prospectus was first issued. The remaining defendants participated in preparing a "Plan of Cooperative Organization" of the premises (sometimes referred to as the "Plan" or "prospectus"). Defendant 215 East 79th Street, Inc. ("the apartment corporation") acquired the premises from Thornley and now operates the building as a cooperative apartment building; defendant Dwelling Managers, Inc. ("Dwelling") was the sponsor and selling agent appointed by Thornley; and defendant Douglas Gibbons-Hollyday & Ives, Inc. ("Douglas Gibbons") is the managing agent of the building.


 On August 14, 1968, the day the Plan was presented in the form of a prospectus, plaintiff occupied his apartment under a lease expiring September 30, 1969. The Plan allocated 550 shares of the corporation to the apartment at a price of $82.50 per share, or $45,375.00. Ashton, by virtue of his tenancy, was given the right to purchase the shares at a 10% discount at any time within 90 days after presentation (i.e., until November 14, 1968). The Plan further provided that shares allocated to an apartment occupied by tenants who did not purchase by November 14, 1968 would thereafter be offered for sale to the public.

 On December 23, 1968, the Plan was amended in certain respects.

 Ashton did not exercise his option to purchase the shares within 90 days after presentation (i.e., by November 14, 1968), and accordingly Dwelling offered the shares publicly. On January 2, 1969, Petcavage, who was not a tenant, filled out an application to purchase the shares and signed a purchase agreement secured by a deposit of $5,500. Petcavage stated in a letter, however, that the purchase agreement and application were conditional upon his receiving an opportunity to visit the apartment.

 On January 3, 1969, Dwelling wrote Ashton requesting permission for Petcavage to view the apartment and advising Ashton that if he did not consent Dwelling would institute court action to obtain occupancy. The next day Ashton wrote Dwelling stating that he had no objection to showing the apartment, but added, "I have not negated the possibility of purchasing the apartment."

 On January 8, 1969, Ashton offered in writing to purchase the shares at the specified price. Negotiations broke down, however, when Dwelling insisted on $100 per share. At the same time Ashton was apparently told that the shares had already been sold to Petcavage.

 Meanwhile, although Petcavage was still unable to gain access to Ashton's apartment, he decided to withdraw the condition attached to the January 2nd purchase offer after examining another apartment similar to Ashton's.

 On February 18, Dwelling sent Petcavage a proprietary lease for the apartment, which Petcavage signed and returned on February 20th together with a check for $49,500 representing the balance of the purchase price of the shares.

 On March 27, 1969, Petcavage received a letter from Douglas Gibbons stating that the closing of title had taken place on March 26, 1969, and that the effective date of his ownership would be April 1st. Petcavage then informed Ashton by letter that title had closed, that Petcavage had become Ashton's lessor, and that Petcavage intended to occupy the apartment no later than September 30, 1969, the date of expiration of Ashton's lease.

 On October 2, 1969, Ashton and Petcavage entered into an agreement by which Ashton was to purchase the shares from Petcavage for $85,000, provided the contract would be voided if Ashton failed to secure the consent of the apartment corporation by October 25, 1969, and provided further that Ashton would vacate the apartment by December 31, 1969 if the transaction was not closed for any reason.

 The board of directors of the corporation met later in October and disapproved of the transfer from Petcavage to Ashton. The board and Petcavage then requested Ashton to vacate the apartment. However, Ashton refused and instituted this action on December 29, 1969. On January 5, 1970, Petcavage instituted a holdover proceeding in Civil Court, New York County, to evict ...

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